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    EC Approves Prolongation of Danish Resolution Scheme for Small Banks

    January 28, 2021

    EC has approved, under the EU State Aid rules, the prolongation of a Danish resolution scheme for small banks with total assets below EUR 3 billion for 12 months, until January 28, 2022. The scheme is intended to facilitate the liquidation of small banks by the Danish resolution authorities, should the need arise. The scheme was originally approved in September 2010 and has been prolonged and amended several times, most recently in August 2019. The measure will continue to be open to banks that are found to be in distress by the competent national authorities.

    The notified scheme is designed to comply with State Aid rules and rests on the Act on Restructuring and Resolution of Certain Financial Enterprises (DARR) of March 31, 2015, which also forms part of Denmark's transposition of the Bank Recovery and Resolution Directive (BRRD: 2014/59/EU). Under the DARR, as of January 01, 2015, the Danish Financial Stability Company (FS) was appointed as resolution authority in Denmark together with the Danish Financial Supervisory Authority (DFSA). The framework granted FS a number of responsibilities and powers in addition to its existing resolution tasks. As resolution authority, responsibilities of FS include preparing resolution plans for all Danish banks, restructuring or winding up distressed businesses, and management of the Resolution Fund. 

    The objective of this prolonged resolution scheme is to facilitate the orderly market exit of small banks through a sale or wind-down process, whereby they cease to exist as a market competitor. To this end, FS will provide State support for the recapitalization of the institution under resolution with funds from the national Resolution Fund in case the capital requirements set by the supervisor are not restored by the bail-in. The injection of State funds will only take place after the bail-in of shareholders, subordinated debt holders, and other liabilities in accordance with the provisions of Article 44 of the BRRD, as implemented by sections 24 to 28 of the DARR. Larger banks—those with total assets above or equal to EUR 3 billion—will not be covered by the winding-up scheme and will, therefore, require individual prior notification for assessment and authorization by EC before the support can be implemented. At the end of 2018, 58 credit institutions in the country were expected to be eligible under this scheme. 

     

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    Keywords: Europe, Denmark, Banking, Resolution Framework, State Aid Rules, BRRD, Small Banks, DFSA, EC

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